Developments in Debt Conversion Programs and Conversion Activities

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized WORLD BANK TECHNICAL PAPER NUMBER 170 WTP-1 70 Developments in Debt Conversion Programs and Conversion Activities Woonki Sung Rosaria Troia EVE li Oi AND TI IWOME / 4. ~E T~ SROFM p ~ ~~~IJI4FCUI ISIU

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3 WORLD BANK TECHNICAL PAPER NUMBER 170 Developments in Debt Conversion Programs and Conversion Activities Woonki Sung Rosaria Troia The World Bank Washington, D.C.

4 Copyright 1992 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C , U.S.A. Al rights reserved Manufactured in the United States of America First printing April 1992 Technical Papers are published to communicate the results of the Bank's work to the development community with the least possible delay. The typescript of this paper therefore has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. Any maps that accompany the text have been prepared solely for the convenience of readers; the designations and presentation of material in them do not imply the expression of any opinion whatsoever on the part of the World Bank, its affiliates, or its Board or member countries concerning the legal status of any country, territory, city, or area or of the authorities thereof or concerning the delimitation of its boundaries or its national affiliation. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, 27 Congress Street, Salem, Massachusetts 01970, U.S.A. The complete backlist of publications from the World Bank is shown in the annual Index of Publications, which contains an alphabetical title list (with full ordering information) and indexes of subjects, authors, and countries and regions. The latest edition is available free of charge from the Distribution Unit, Office of the Publisher, Department F, The World Bank, 1818 H Street, N.W., Washington, D.C , U.S.A., or from Publications, The World Bank, 66, avenue d'iena, Paris, France. ISSN: In the Financial Advisory Services Unit in the Cofinancing and Financial Advisory Services Department at the World Bank, Woonki Sung is senior financial officer and Rosaria Troia is a researcher. Library of Congress Cataloging-in-Publication Data Sung, Woonki, Developments in debt conversion programs and conversion activities / Woonki Sung, Rosaria Troia. p. cm.--(world Bank technical paper, ISSN ; no. 170) ISBN X 1. Debt equity conversion-developing countries. I. Troia, Rosaria, II. Title. m. Series. HJ8899.S '6' dc2O CIP

5 - iii - ABSTRACT Towards the end of the 80s, after a rapid expansion in debt swaps in 1987 and 1988, some countries began suspending debt conversion programs in the face of concerns about the domestic liquidity implications of such operations, the lack of additionality of associated investments, and pricing. The recent revival in debt swaps, however, has an added attraction: they facilitate the privatization movements in highly-indebted countries. The new trend towards linking swaps to governments' privatization efforts increased rapidly in This was partly in response to the potential adverse inflationary effects of some swaps. These privatization projects using debt swaps do not necessarily involve the monetization of foreign debt; furthermore, in some instances the dimensions are so circumscribed that macroeconomic problems of swaps may not arise. In Mexico, as part of the 1989 debt reduction package under the Brady initiative, the program limits investments to state-owned companies being privatized and infrastructure development projects. In Argentina, debt swaps are being used to privatize public sector enterprises. The objective of this paper is to amalgamate the existing literature on debt conversion in a concise and unique manner. The recurrent theme of the paper is the link between debt conversion, foreign investment and privatization. Part I of this paper describes recent activities in debt-forequity swaps. Part II looks at the increased interest in other forms of conversion activities, hereinafter referred to as debt-for-development swaps, namely debt-for-nature, debt-for-education and debt-for-health care swaps. The information in this paper was gathered from a number of sources, including central banks, LDC debt traders, and published papers and periodicals. As information on this type of material is difficult and extremely time consuming to obtain, particularly with regards to the more technical details, we hope that it becomes useful factual material to the audience in their research or policy issues related to debt conversion activities, foreign investment or privatization. There is considerable scope for continuing this type of research. The authors are staff of the World Bank Group and may be consulted.

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